In absolutely breaking news over the weekend, the government announced a takeover of Fannie Mae and Freddie Mac and will begin (resume?) operating these entities.

The essential change here is that Mortgage Backed Securities are explicitly the same as government debt.  This means that Mortgage Bonds will no longer be more risky (higher rates) than Treasury debt.

This means that mortgage rates just dropped, possibly forever.

In the first few hours of trading today, here's what we're seeing--

• The risk premiums between mortgage debt and Treasury debt are narrowing:
  
  • Mortgage Backed Securities are up 91 basis points
  • US Treasuries are down by about 35 basis points
• Mortgage rates are down significantly
  • As of September 4th, mortgage rates were at 6.35% paying .7% in fees (Freddie Mac)
  • As of September 5th, the Professional Mortgage Partners 30 Year Fixed Rate for 720 FICO borrowers was somewhere between 6.125% and 6.25%.
  • As of today, rates are below 6%.

We expect breaking news to continue to post throughout the day.  To have our blog delivered by email, simply enter your email address below.